When iPhones ring, the economy listens

Written by New York Times | Updated: Oct 27 2014, 08:15am hrs
Gloomy economic news and the wild swings of the stock market may be getting you down. But at least you can count on this: Weve entered the sweet spot of the iPhone cycle.

The iPhone is having a measurable impact, said Michael Feroli, the chief United States economist for JPMorgan Chase. Its a little gadget, but it costs a lot and it seems that everybody has one. When you do the multiplication, its going to matter. He estimates that iPhone sales are adding one-quarter to one-third of a percentage point to the annualized growth rate of the gross domestic product.

You may not think of the iPhone as a financial powerhouse. After all, its just a consumer good albeit a highly functional, high-end one that you can carry in your pocket or your purse. Sales typically surge every two years when, as now, Apple does a major iPhone upgrade. You may have the warm and personal relationship with the iPhone that Timothy D Cook, Apples chief executive, described on Monday to Wall Street analysts during a conference call. Apples next three months will be incredibly strong, he said. And he spoke enthusiastically about the principal reason for this performance: These iPhones are the best we have ever created and customers absolutely love them.

Whether you love them or not, though, its a good moment to recognize their significance as a financial force.

The iPhones financial impact starts, of course, with Apple, which is reaping enormous profit from it. As the company disclosed in data embedded in a Securities and Exchange Commission filing on Monday, it has been selling a broad mix of iPhone models at an average price of $603.

Thats not remotely close to the starting price of $199 that Apple advertises, as I wrote last month. The full price is embedded in service agreements that many customers in the United States reach with phone carriers. And many of those carriers are stating that full price quite openly. The real starting price for a new, basic iPhone is $649, and models with more memory and bigger screens cost much more.